Sappi plans to invest in cellulose expansion

Sappi plans almost $200 million (R1.6 billion) in capital spending in its fourth quarter, mostly on chemical cellulose expansion as the largest maker of glossy paper seeks faster-growing markets.

The conversion of the kraft pulp mill in Cloquet, Minnesota, to produce chemical cellulose used in textiles, and expansion of the Ngodwana mill in Mpumalanga was “going well” and both would be “up and running” in the third quarter of next year, chief executive Ralph Boettger said on Friday. Sappi planned total capital expenditure this year of $425m.

The company’s primary focus has been on expanding its higher-margin chemical cellulose operations as paper sales have slowed. Last year Sappi announced plans to shut mills in South Africa and Switzerland, eliminating about 800 jobs. Rising costs and weaker paper sales have also led Helsinki-based competitors Stora Enso and UPM Kymmene to close mills.

Sappi said on Friday that its third-quarter loss had widened by 54 percent, hit by slow demand and planned annual maintenance shutdowns, and the company expected market conditions to remain tough.

Its diluted headline loss a share for the quarter to June totalled $0.20, compared with a loss of $0.13 a year earlier. It reported a basic loss a share of $0.20 for the three months to June, versus a loss of $0.13 a year earlier and a profit of $0.11 in the quarter to March.

The company said operating profit, excluding special items, was steady at $60m from the same period last year.

The global paper industry is struggling to recover from a slump caused by sluggish demand and overcapacity and Sappi said market conditions would remain tough.

“Trading conditions are expected to be weaker than a year ago, with lower volumes for most of our products and pricing, particularly for pulp, to remain under pressure,” it said.

Sappi fell 0.9 percent to close at R24.19 on Friday.

While volumes sold and prices were worse than expected in the quarter, the company did not expect “further deterioration in the fourth quarter”, Boettger said.